The Cardinal has set up a £3 million appeal for Westminster Cathedral which he fears will be forced to close within a decade if cash is not found for urgent repairs(Photo: HEATHCLIFF O'MALLE)

Cardinal Cormac Murphy O'Connor, 76, made the astonishing claim at a lavish fund-raising dinner at Claridges which secured pledges of hundreds of thousands of pounds for the catholic church.

The Cardinal, dressed in his full clerical regalia, said in a speech at the black tie dinner that he had worried whether the dinner should go ahead because of the troubled economic times.

But he went on to say that in 1989, with the collapse of the Berlin wall, that "communism had died".

In 2008, he said, " capitalism had died".

The remarks will cause dismay in Downing Street as the Cardinal's remarks will be interpreted as a signal that the entire economic order has collapsed.

The Government has clashed with the Cardinal before over homosexual adoption, abortion and the Embryology Bill. One Whitehall source said: "We would like the church to work with us, not against us."

The remark caused astonishment in the ballroom, where the dinner was held, to launch an £8 million Faith in the Future appeal for money for the work of the bishops in England and Wales.

One guest who was present, who declined to be named, said:"I could hardly believe my ears. The Cardinal announced that, in his view, that Communism had died in 1989 and capitalism had died in 2008 because of the credit crisis."His remarks were part of a carefully considered thesis that it was capitalism that had got us into this mess and had died because of it. It was not just remarkable that he thinks that but it was remarkable that he said it in a room packed with some of the richest and most influential catholics in the land. Those same capitalists pledged a six figure sum to the church appeal."

The four course dinner, with a champagne reception, had been provided free of charge by Derek Quinlan, the property developer, who owns Claridges who is worth an estimated £60 million.

Sir Rocco Forte, the hotelier and prominent Roman Catholic, was in charge of the decoration. He decked out the ballroom in red flowers and red lights to match the Cardinal's clerical outfit.

The guest list included Baroness Williams, the Lib Dem peer and former Labour Cabinet minister, Lord Brennan, the Labour peer, Lord Guthrie, the former Chief of Defence staff, the Conservative MP Nicholas Soames, and a clutch of bishops from England and Wales.

Nicola Benedetti, the violinist, serenaded the guests and Julie Etchingham, the presenter of the ITV News at 10, compèred the proceedings.

Last month the Cardinal, 76, issued a statement on the economic crisis which said: "Religious leaders are not normally economists, however, they cannot ignore the damaging human consequences of the rise and fall of economic indicators. Behind the gloomy headlines are cities, neighbourhoods, families, individuals deeply affected by the economic breakdown; and the hardest hit will be the poor: those already struggling to survive. Christians have a paramount concern for the poor. This *preferential option for the poor* is a constant theme in Catholic Social Teaching".

A sopokesman for the Cardinal said: "They were private remarks at a private dinner."

The Cardinal has also set up a £3 million appeal for Westminster Cathedral which he fears will be forced to close within a decade if cash is not found for urgent repairs.

Parts of the building, which opened in 1903 but has never been completed, are in danger of structural collapse. The cathedral is recognised as one of the finest examples of Victorian architecture and Byzantine art.

The remarks by the Cardinal come as leading bishops in the Church of England have launched a withering attack on the Government, questioning the morality of its policies.

Five of the Church’s most senior figures said the Government now presided over a country suffering from family breakdown, an unhealthy reliance on debt and a growing divide between rich and poor.

The Rt Rev Nigel McCulloch, the Bishop of Manchester, accused Labour of being “beguiled by money’’ and “morally corrupt’’. He said: “The Government believes that money can answer all of the problems and has encouraged greed and a love of money that the Bible says is the root of all evil. It is morally corrupt because it encourages people to get into a lifestyle of believing they can always get what they want.’’

The Rt Rev Tom Wright, the Bishop of Durham, said: “Labour made a lot of promises, but a lot of them have vanished into thin air,’’ he said. “We have not seen a raising of aspirations in the last 13 years, but instead there is a sense of hopelessness.

“When a big bank or car company goes bankrupt, it gets bailed out, but no one seems to be bailing out the ordinary people who are losing their jobs and seeing their savings diminished.’’